Productivity of UK workers lags behind world’s biggest economies

The productivity of UK workers fell in the three months to June, as new figures rank Britain well behind the world’s biggest economies.

Despite increasing numbers of hours put in by workers, labour productivity as measured by output per hour fell by 0.1% in the three months to June, up from a fall of 0.5% in the three months to April, according to the Office for National Statistics. The gap between British labour productivity and that of the rest of the G7 slightly improved from from 16.1% in 2015 to 15.4% last year.

Philip Wales of the ONS said: “UK labour productivity continued to lag behind our international partners in 2016. New, innovative analysis suggests that this lower level of productivity was evident across all industries, although the size of the gap varies considerably.”

Next week the Office for Budget Responsibility is expected to admit that its forecasts for improving productivity growth have proved to be consistently optimistic. The government’s independent forecaster will say that the trend for lower productivity growth since the 2008 crash is likely to persist for several more years, warranting a downgrade from its March forecast.

Without an improvement in productivity, the UK economy is expected to miss out on expected increases in wages and living standards, putting further pressure on the welfare system and depressing tax receipts.

Treasury officials are known to believe that the downgrade will wipe out about two-thirds of the government’s £26bn war chest, which the chancellor set aside in the last budget to spend in the event of a slowdown following a disorderly and damaging exit from the EU.

Philip Hammond was expected to use some of the money in the autumn budget on 22 November to boost public sector pay and alleviate a spending squeeze that is hitting schools, hospitals and the police service at a time when all three services are under strain.

But the loss of about £18bn over the next four years following a reduction in productivity growth will severly limit his room for maneouvre.